Yippee. House prices have stopped falling and some experts are even saying they might end the year higher than they began it. Break out the champagne, for the British middle-class obsession, having been quashed by a couple of years of falling prices, can find new lease of life.

But do we really want another boom? Have we learned nothing from the spectacular house price boom and bust under this Labour government? Unfortunately, it appears so.

There is no real debate about how we should stop this happening again, even though the housing boom of the noughties and the credit crunch were two sides of the same coin.

There seems to be little interest in a radical change to the tax system so that work and enterprise are better rewarded, while sitting on unproductive property assets is discouraged.

It is worth remembering that although residential property accounts for more than half of all the assets owned in Britain, we do not, as a society, get richer if house prices rise. We simply transfer money from younger people climbing on to the bottom of the housing ladder through the middle-aged and ultimately to the old, who sell properties as they go into a home or die.

Some landlords who sell properties may also benefit, of course, but only at someone else's expense – there is no net gain.

But we do have a real problem in Britain with a shortage of housing and it is showing no signs of improving in spite of a 25% fall in house prices. House building has collapsed to its lowest in the post-war period and first-time buyers are still unable to get on the property ladder because the mortgage market remains almost frozen.

Yet we have a tax system that encourages us to use the existing housing stock inefficiently. We have the ludicrous stamp duty that taxes property transactions and discourages people from moving.

Old people tend to "over-occupy" housing by continuing to live in a large family house. And the tax system offers a disincentive for them to move since they have to pay stamp duty again. They also get a reduction in council tax for living alone.

Council tax is also absurd since people living in the biggest houses pay little more, proportionately, than people in flats, because the tax is based on such old valuations.

It is also manifestly unfair that the value in people's houses is very often bestowed on them by the location of that house, not the value of bricks and mortar that go into the house. And often that value comes down to the quality of local amenities provided by the public purse in the form of good schools, nice parks or a railway station.

A good example of this is the building of new rail links from central London out to the Olympic site at Stratford. Anyone living near one of the new stations on the route has enjoyed a rise of about £50,000 in the value of their house without spending a penny and will not see that extra value taxed at all.

Labour has been fretting for years that its great projects, such as tax credits and redistribution, have come to little. Inequality remains as high as it ever was and property ownership is the reason. Labour's response has been to get more people on the ladder to share in rising property values. But the real problem is that property prices are rising (with the exception of the odd bust) in the first place.

So what should be done about it? An excellent new report from the thinktank Compass* makes a compelling case for a wholesale reform of the housing market in Britain, including a land value tax that would curb property speculation

"Gradually replacing the regressive council tax and business rates with a modest land value tax would help stabilise the market and could remove the final vestiges of the poll tax," writes the report's author Toby Lloyd.

"Allowances at the lower end and a right for pensioners to postpone some or all of their payments until their homes were sold would shift the tax burden away from ordinary households towards those with large amounts of landed wealth. We should start to shift taxes away from our effort and labour and towards taxation on unearned windfall gains like land values."

And a new paper by David Cooper of the Liberal Democrats Action for Land Taxation and Economic Reform (Alter)** says there is a strong social argument for a tax on land values as well as economic efficiency ones.

The inequality of property wealth between the richest and poorest in our society is much larger than the inequality of incomes (see graphics), he says. The top 5% of wage earners in Britain earn about 20% more than the next 5% below them. With property, the top 5% own property worth 600% more than the next 5%. Yet while income is taxed progressively, property is not. Small wonder, then, that there is an inequality issue.

"There is a popular belief that income tax is the fairest tax, since it reflects ability to pay. This is a misapprehension," says Cooper.

"Income tax is easy to extract, and for the very wealthy is relatively painless: but it does not truly reflect ability to pay. Unless politicians find the courage to tax wealth, conservative minded middle income earners will continue to complain bitterly that their taxes are too high, and they will be right."

He argues, rightly, than any property tax needs to be well implemented and truly reflect market values. But the good thing is that identifying the value of the land under a building is easy – you take the market value of the property and subtract the rebuild value of the property.

And land can't relocate to Monaco. Rich tax exiles who live most of their time abroad would have to pay the land value tax on their second home in Mayfair, for example.

"Tax will never be welcomed, but it should at least be fair. A tax based on wealth in the form of land and buildings must be part of a fair system, operating along with income tax. Such property wealth is an excellent indicator of overall wealth, and is especially easy to identify: land cannot be moved or taken offshore, unlike financial assets," writes Cooper.

Unfortunately, such a radical reform of the tax system would require bold political leadership.

* Don't bet the house on it: No turning back to housing boom and bust, by Toby Lloyd, www.compassonline.org.uk

** Property Tax in the UK: the social justice argument, by David Cooper, www.libdemsalter.org.uk